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Will the Housing Market Crash? Why 2024 is Nothing Like 2008

We’re sure you’ve heard those whispers about a 2008-style housing crash lurking around the corner. Doomsday lovers will latch on to whatever narrative they can – household debt’s hit a whopping $17 trillion, inflation’s still playing hard to get with the Fed’s 2% target, and that recession boogeyman’s still knocking.

But hold your horses before you start running for the hills. We aren’t reliving the chaos of 2008, and we’ll show you why, backed by cold, hard facts.

The Real Story Behind Supply and Demand

Picture the housing market as a high-stakes game of musical chairs, where the number of players far outweighs the available seats. That’s the essence of today’s real estate market, where a tight supply-and-demand balance keeps prices high and buyers on their toes. Unlike the housing bubble of 2008, when chairs were plentiful and players scarce, we’re now witnessing a dramatic reversal in the rules of homeownership.

The Supply Shortage Keeping the Market Afloat

The housing bubble of 2008 was a buyer’s paradise, with homes practically falling from the sky. Back then, supply was abundant, with 9.4 months of housing on the market. Fast-forward to 2024, and we’re looking at a measly 2.9 months. That’s right—we’ve gone from clearance sales to empty shelves in just over 15 years. 

Today’s housing market is a far cry from 2008’s foreclosure frenzy. It’s tight, with existing homes scarce and new construction lagging behind demand. Despite 30-year fixed mortgage rates exceeding 7.3% (as of July 1, 2024), we’re firmly in a seller’s market. U.S. house prices jumped 6.6% from Q1 2023 to Q1 2024, according to the FHFA HPI®. And by May’s end, prices had risen for 9 straight months, hitting all-time highs at the fastest rate in a year.

In our recent “State of the Market” webinar, we discussed market fundamentals and the current supply-demand mismatch in detail. We shared a revealing slide that paints a clear picture: before the 2008 crash, we built houses like there was no tomorrow, with banks handing out 0% down or even 110% LTV loans. Fast-forward to today, and we’re facing the opposite problem—a housing shortage. It’s night and day compared to pre-2008.

Millenial-Driven Demand

The American Dream is not dead, and getting a millennial revival is shaking up the housing market. Despite headwinds – think 1.3% GDP crawl in Q1 and an uncertain economy – millennials are storming the real estate gates. They now make up 38% of the market, and they’re not letting sky-high interest rates rain on their parade: 78% are ready to bite the bullet on rates north of 7% to plant their flag on a piece of property.

The biggest surprise? With all this talk about an inventory squeeze, the plot thickens with a surprise 35.2% annual jump in housing inventory, largely driven by a 46.6% jump in affordable housing. Millennial preferences for walkable communities, access to amenities, and flexible living arrangements are also driving demand as are migration patterns.

Strengthened Lending Practices and Education: A Barrier Against Crisis

Remember the chaos of 2008? Foreclosures were everywhere, neighborhoods were emptying, and the economy was in freefall. It all started with risky mortgages, and let’s say that a lot has changed since then.

From Subprime to Prime: Changes in Mortgage Lending

The 2008 housing crash marked a defining moment in real estate, primarily driven by the unchecked expansion of the subprime mortgage market. Back then, institutions like Fannie Mae and Freddie Mac rolled out the red carpet for those with less-than-stellar credit histories, offering adjustable-rate mortgages that started low but escalated quickly. This approach ultimately led to widespread defaults, crashing financial markets, and triggering the Great Recession. 

It’s clear how much the aftermath of this economic turmoil shapes how lenders assess risk and determine borrower reliability these days. Where once a credit score of 620 might have sufficed, competitive rates now require a score between 650 and 850, with the most favorable loan terms frequently requiring a credit score of 740 or higher. Lenders also weigh more heavily on income, employment history, and debt-to-income ratios.

Regulatory Reforms for Market Stability

With the 2008 crash, several sweeping measures also overhauled financial regulations to make the system more robust and reassure investors:

  • Introduction of Dodd-Frank Act: This act set up key agencies like the Consumer Financial Protection Bureau (CFPB) and the Financial Stability Oversight Council (FSOC) to monitor and protect the economy from institutions that are “too big to fail.”
  • Creation of the Volcker Rule: Included in the Dodd-Frank Act, this rule restricts banks from certain kinds of speculative trading that could threaten the economy’s stability.
  • Establishment of the CFPB: This bureau focuses on guarding consumer interests, ensuring that financial offerings are fair and transparent.
  • Implementation of the FSOC: This council oversees major financial institutions to prevent the kind of unchecked risk-taking that led to the 2008 crisis.
  • Launch of the TARP Initiative: Through the Emergency Economic Stabilization Act of 2008, the Troubled Asset Relief Program injected $475 billion into the banking system, stabilizing it during a precarious time.

The Building Blocks Supporting Market Strength

Thinking about jumping into the 2024 housing market? You’re not alone if you’re feeling a bit queasy. With mortgage rates through the roof and home prices that could make your eyes water, it’s easy to get cold feet. But hold on – there’s more to this story than doom and gloom headlines. Let’s peek behind the curtain at some surprising factors keeping the market on its feet. 

Interest Rates and Employment: Key Economic Indicators

We acknowledge the tough mortgage and interest rate environment. Mortgage payments have hit record highs, and rates are at their highest in decades and likely to stay put. The 5.25% to 5.5% Fed benchmark rate, a 23-year high, also remains, and Fed cuts will not come as fast as many expected.  

Yet, housing market affordability could improve in the second half of 2024 as homebuilding activity grows stronger. The job market is also outperforming. Employment rose by 272,000 jobs in May, beating the average by 40k and showing strong gains across health care, government, and hospitality sectors. What’s more, your paycheck is likely looking a bit healthier, too, with average hourly earnings up by 4.1% over the year. So, despite all the doom and gloom with rates and such, this uptick could be the silver lining for those feeling priced out.

Technological Advancements, Market Transparency, and Education

Gone are the days of sifting through paper listings or relying solely on a realtor’s word. Technology has revolutionized the real estate game, making it easier for everyone to get involved and educated. Investors and buyers are also now more aware of the risks involved and the importance of understanding key market indicators such as the house price-to-income ratio, the rate of housing price increases, and supply-demand dynamics.

With 47% of buyers starting their house hunt online, it’s clear that digital platforms are now the go-to for sniffing out new homes. These platforms simplify the search and peel back layers of the market previously shrouded in secrecy. Every property detail, from square footage to neighborhood demographics, is just a click away. Further driving digital transparency is a surge in proptech innovations, like virtual tours that let you explore homes from your couch and cloud-stored documents that you can access anytime, anywhere.

Real-world applications of these technologies are reshaping how to buy and sell properties. Take Zillow’s ‘Zestimate,’ for example, which uses AI to provide real-time property valuations, dig into a massive pool of data to reflect current market conditions, and bolster user confidence. Similarly, platforms like Compass and Knock integrate AI to streamline the complex buying and selling processes to make transactions smoother and more predictable. Meanwhile, real estate professionals are using video apps more than ever to create engaging visual tours that reach potential buyers wherever they are in the world. 

Wrapping Up

While some might draw parallels between 2024 and 2008, the housing market today is a different beast entirely – more resilient and built on stronger foundations. We have a tight supply-demand balance keeping prices afloat, with millennials eagerly jumping into homeownership despite high rates. Lending practices have tightened significantly since the subprime mortgage crisis, with stricter credit requirements and regulatory reforms providing a safety net against reckless lending. The job market is showing strength, and technological advancements bring unprecedented transparency to real estate transactions. So, when you hear those whispers of an impending crash, remember: this isn’t 2008 redux. The market’s got a lot more muscle this time around. No, it won’t crash- in fact, it’s looking pretty stable from our vantage point, and the upcoming Fed rate cuts will provide a tailwind for further growth.

Happy investing!

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